Incoterms^® 2020 Guide: All 11 Rules Explained

Incoterms, in one paragraph

Every China sourcing negotiation eventually runs into a three-letter code on a supplier's quotation. This guide covers all 11 rules in one place. If you only need the three terms that come up most often in China trade, the dedicated FOB vs CIF vs DDP comparison goes deeper on those specifically. For EXW, FCA, and DAP, standalone guides below cover the practical detail this overview only summarizes.

Three separate questions every Incoterm answers

The single biggest source of confusion is treating "who pays" and "who bears risk" as the same question. They aren't, for four of the eleven rules. Every Incoterms rule actually answers three questions independently:

• Who pays which costs — freight, insurance, loading, unloading, duties, and how far along the journey the seller's payment obligation reaches.
• Where risk transfers — the exact physical point after which loss or damage in transit is the buyer's problem, regardless of who is still paying for the leg.
• Who clears customs — export clearance in China and import clearance at destination, and who is named as importer of record.

Under CIF and CFR, for instance, the seller pays freight all the way to the destination port — but risk already passed to the buyer the moment the goods were loaded on the vessel in China. If the ship sinks mid-voyage, the freight was the seller's cost, but the cargo loss is the buyer's risk. The same split applies to CPT and CIP for non-sea transport. This gap is exactly why cargo insurance matters even under a term where the seller is "paying for shipping" — see shipping insurance & risk.

The two groups: any transport mode vs. sea and waterway only

The ICC splits the 11 rules into two groups by transport mode. Using a sea-only term for an air or rail shipment is a common supplier-quotation mistake — see mistakes this guide prevents.

Group 1 — Rules for any mode of transport (7 rules)

• EXW — Ex Works. The seller makes goods available at their own premises; the buyer arranges collection, export clearance, and everything after. The minimum possible seller obligation — and, for exactly that reason, the term buyers should scrutinize hardest. See the full EXW guide.
• FCA — Free Carrier. The seller delivers export-cleared goods to a carrier or place named by the buyer — their own premises, a forwarder's warehouse, or a terminal. Works for every mode and is the ICC's recommended term for containerized cargo. See the full FCA guide.
• CPT — Carriage Paid To. The seller pays freight to a named destination, but risk transfers earlier, when the goods are handed to the first carrier — the CFR of "any mode" logistics.
• CIP — Carriage and Insurance Paid To. Same structure as CPT, but the seller must also buy cargo insurance. Since Incoterms® 2020, that insurance must meet Institute Cargo Clauses (A) — broad, all-risk cover — a higher standard than CIF requires.
• DAP — Delivered at Place. The seller delivers to a named destination, ready for unloading, carrying transport risk the whole way; the buyer unloads and clears import. See the full DAP guide.
• DPU — Delivered at Place Unloaded. Identical to DAP, except the seller must also unload the goods at destination — the only Incoterms rule requiring the seller to unload. Renamed from "DAT" in the 2020 revision.
• DDP — Delivered Duty Paid. The seller delivers to the buyer's door, clears import, and pays duties and taxes — the maximum possible seller obligation. Widely advertised in China trade, but frequently misapplied; see the "fake DDP" note below.

Group 2 — Rules for sea and inland waterway transport only (4 rules)

• FAS — Free Alongside Ship. The seller delivers goods alongside the vessel at the port of shipment — on the quay or a barge. Risk transfers there. Common for bulk and breakbulk cargo, rare for containers.
• FOB — Free on Board. The seller delivers the goods on board the vessel named by the buyer; risk transfers once the cargo is loaded. The default quote from most Chinese suppliers and the anchor term of China trade. See the FOB vs CIF vs DDP comparison.
• CFR — Cost and Freight. The seller pays freight to the destination port, but risk transfers at loading, same point as FOB — effectively "FOB plus prepaid freight," with no insurance included.
• CIF — Cost, Insurance and Freight. The seller pays freight and buys minimum cargo insurance (Institute Cargo Clauses C) to the destination port; risk still transfers at loading in China, not on arrival. See the FOB vs CIF vs DDP comparison for the full breakdown against FOB and DDP.

All 11 Incoterms® 2020 rules — full comparison table

What changed in Incoterms® 2020

Incoterms are revised roughly every ten years; the current edition, effective since 1 January 2020, made four changes worth knowing before quoting an older contract template:

• DAT renamed DPU. The old "Delivered at Terminal" became "Delivered at Place Unloaded," clarifying that the named place doesn't have to be a formal terminal — any agreed location works, as long as the seller unloads there.
• CIP insurance raised. Sellers under CIP must now buy Institute Cargo Clauses (A) coverage — broad, all-risk — up from the previous minimum (C) level. CIF's minimum insurance requirement was left unchanged at Clauses (C), so CIP and CIF now carry meaningfully different insurance standards.
• FCA on-board bill of lading option. Buyer and seller can now agree that the carrier issues an on-board bill of lading to the seller after loading, even though risk already transferred earlier under FCA — solving a documentation problem that used to push letter-of-credit shipments toward FOB by default.
• Clearer cost listings and security obligations. Each rule's article A9/B9 now lists every cost the party owes in one place, and security-related clearance requirements (post-9/11 supply-chain security rules) were made explicit across all 11 terms.

As of this guide's publication, Incoterms® 2020 remains the current, active edition — there has been no newer revision.

Choosing the right Incoterm for a China order

• First order, want control and lower landed cost: FOB is the standard choice — you book freight and insurance yourself, and it's the term Chinese suppliers already understand best.
• Want a seller-managed freight quote without giving up import control: CIF (sea) or CIP (any mode) — the seller pays and insures the main leg, but you still clear import yourself.
• Containerized cargo handed to a forwarder before the port, or air/rail freight: FCA — closes the risk gap FOB leaves open for inland handovers, and is the only "any mode" equivalent of FOB.
• Want fully hands-off delivery to your door: DAP if you want to keep your own customs broker, DDP only after confirming who is legally acting as importer of record — see the "fake DDP" note in the DAP guide.
• Comparing quotes across different Incoterms: a lower FOB price and a higher DDP price aren't directly comparable until freight, insurance, and duty are added back in — use the Landed Cost Calculator to normalize every quote to the same landed-cost basis before deciding.

Applying Incoterms with a China-side partner

The term written on a purchase order only protects you if what happens at the factory and port matches what the term assumes — export documents filed correctly, the right party loading the right vehicle, cargo insured when nobody else is obliged to insure it. LIFA coordinates that from the China side: confirming the agreed Incoterm with the supplier before deposit, checking export paperwork, and coordinating the shipment itself through shipping coordination — so the three-letter code and the physical handover actually line up.

Mistakes this guide prevents

• Using a sea-only term for air or rail freight. FAS, FOB, CFR, and CIF are not defined for those modes — use FCA, CPT, CIP, DAP, DPU, or DDP instead.
• Assuming "seller pays freight" means "seller carries risk." Under CFR, CIF, CPT, and CIP it doesn't — risk transfers earlier than the seller's payment obligation ends.
• Treating "DDP" as automatically the safest option. If the supplier can't say who the importer of record is at your destination, it's often a grey-channel customs arrangement, not genuine DDP.
• Quoting an Incoterm without a version year. "FOB, Incoterms® 2020" is enforceable; "FOB" alone leaves which edition's rules apply ambiguous.
• Comparing quotes under different Incoterms at face value. Always normalize to landed cost before comparing an EXW price to a DDP price.